The Real Reason It Doesn’t Matter That Amazon Is Losing Money

Amazon CEO Jeff Bezos. Photo: Victor J. Blue/WIRED

Following another quarter of surging revenue, Amazon’s march toward overtaking Target in annual sales is on track to happen this year. Once that happens, only Walmart will stand in the way of Amazon’s retail dominance.

But after Amazon’s earnings call yesterday — another typical quarter where, despite huge sales, Amazon lost money and its stock still shot up to a new record high — I realized that I wasn’t looking at the numbers quite right. The simple revenue comparison between Amazon and its big retail rivals doesn’t tell the whole story. Walmart and Target are companies that do most of their business in the U.S. What I should have been looking at is Amazon’s influence overseas.

Of all the largest U.S. retailers, only Amazon can claim to be a truly global company.

Until 2013, when it expanded into Canada, Target was a purely U.S. operation. This means that all of its nearly $72 billion in sales were homegrown. For Amazon, by contrast, little more than half of its 2012 sales were made in the U.S. — $34.4 billion out of $61.1 billion total. On last year’s list of largest retailers by U.S. sales, Amazon doesn’t even crack the top ten.

We nationalistic Americans might be inclined to see Amazon’s low U.S. sales ratio as a sign of weakness. Why can’t it win on its home turf? But this clearly doesn’t concern investors, and for good reason: In a global economy, Amazon’s ability to sell around the world is a unique sign of strength.

At Walmart, which still crushes all competitors with nearly $468 billion in sales last year, more than 70 percent of massive volume came from the U.S. Though the company just announced it is opening more stores in China, it’s closing others as the rapidly changing Chinese retail sector shakes out, largely because of the surging popularity of e-commerce.

In India, meanwhile, Walmart indefinitely postponed a plan to open hundreds of big-box stores, blaming supply chain-crippling regulations that require a large percentage of merchandise to be bought from local businesses.

Amazon, on the other hand, is growing in India. On the company’s earnings call yesterday, CFO Tom Szkutak said Amazon was providing a platform for local businesses to sell using its Fulfillment by Amazon service. In other words, Amazon is specifically enabling Indian businesses to sell more. Szkutak said on the call that India lacked advanced infrastructure for e-commerce. But reading between the lines, he gave the impression that Amazon would gladly help the country build out that infrastructure.

“We’re in investment mode there,” he said. “It’s a long-term opportunity, but that’s a very exciting opportunity.”

While traditional retailers depend on setting up stores that invariably compete with local merchants, Amazon’s buildout of its third-party sales operation gives it a way to soothe fears of retail imperialism.

Amazon’s approach to infrastructure is another incentive the company can offer to pry open international markets. The company’s profit-killing warehouse building spree in the U.S. shows its willingness to build the rails on which its business can run. Especially for countries that are still lacking in logistics, Amazon could make the case that better roads for Amazon means better roads for all businesses there.

Amazon’s flexibility in overseas markets — where sales have grown by 29 percent over the past nine months — is just one more piece of what investors love about Amazon: its diversification. What other sellers of books, clothes, and gadgets can also boast a $600 million cloud-computing contract with the CIA, a video-streaming service to rival Netflix, and hardware that competes credibly with Apple?

The future of business is global, and Amazon is a business of the future. Amazon may not make money now. But Jeff Bezos believes he’s building a company that can catch where the money is headed. For now, at least, Wall Street is willing to go along for the ride.